Don’t Forget About Treasury Bills To Keep Cash

People who are looking for the next best place for their cash now that ING’s Winter Sale 4.75% APY sale is over, and HSBC Direct‘s 4.80% APY promotion is soon ending, should not forget to consider Treasury Bills. You sacrifice some liquidity, but recent 28-day T-Bills have been paying 4.50-4.60% interest. Since the interest is exempt from state and local taxes, the equivalent return (calculator) can easily top 5% for those in many states. I know you can even link TreasuryDirect up with Emigrant Direct and HSBC, but I’m not sure about Capital One 360. Anyone try?

You can see my T-Bills experiences here in reverse order. Auctions for T-Bills are on Mondays and Tuesdays, so if you want in for next week you should schedule them soon.

Comments

Iopened an account at treasurydirect. Can someone give me a quick 1-2-3 on how to buy a bill and try it out? On the left side there is box that says buy… I am thinking of buying a $1000 4-week bill as a trial to see how it goes…

Hi Jonathan,
I have a treasury direct account that I have been using for savings bonds ( I and EE) for the past 2-3 yrs. I just bought a $1000 4 week T bill on thursday, I wanted to know:
1) Will the money be taken out of my account on tuesday ?
2) Will they take out the discounted amount like $997 ?
3) At the end of 28 days will they put back $1000 in my account ?
4) DO they charge $45 if you want to take out the money earlier than that ?
5) At the end of the year will the treasury send me a 1099 ?
thanks a lot,

Just bought a 28-day bill this past Tuesday and funded using ING. So yes ING will work with Treasury Direct. Moved all my short term cash into ING when they raised to 4.75% and now it has all moved elsewhere this week. What did they expect people would do? Leave it there with rates where they are? Silly people.

* ING has a limit of 6 withdrawls of any type per month. As long as you don’t exceed that limit, you won’t be charged anything for your TD purchase.

* T-bill purchase dates are weird. The “auction date” will be on Monday (for 6 and 3 month bills) and on Tuesday (for 28-day bills). However, your actual transaction date is not until Thursday. Thursday is also the maturity date, so if you schedule to reinvest you’ll find that your next purchase date listed will actually be 2-3 days before the maturity date of the original security. This is OK because, all you have to remember is ALL T-BILL TRANSACTIONS FOR EACH WEEK OCCUR ON THURSDAY. (Or if Thursday is a holiday for a particular week, it will be either the day before or after with the maturity adjusted by one day.)

Great posting! But I personally think that the earnings you get from the TBill are somehow deceiving, because one does not earn anything on a fraction of $1000 ? this is different from banks where every penny in your account earns interest. Anyhow, I like the benefits of no taxes?

just to clarify any confusion, that is “no state taxes” – you still have to pay Fed. Great in California (9%), useless in Florida (0%)

On the rates, the Treasury posts both “discount rate” and “investment rate” for their bills. If you want to compare, for example, with the yield you get at banks, you’d use the investment rate and then account for not having to pay state tax. Jonathan has both the formula and a handy calculator for this in a couple of archived posts.

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